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ISBN 10: 8214337869
ISBN 13: 9798214337869
Author: Karla Johnstone Zehms

AUDITING: A RISK-BASED APPROACH TO CONDUCTING QUALITY AUDITS integrates the latest updates, fraud risks and ethical challenges−whether it’s the AICPA and IAASB’s clarified standards to harmonize auditing standards in the U.S. and abroad, the Committee of Sponsoring Organizations (COSO) of the Treadway Commission’s updated Internal Control–Integrated Framework or the AICPA’s recently issued new audit sampling guidance. Give your students valuable hands-on experience with their reasoning and auditing skills.

Auditing A Risk Based Approach to Conducting a Quality Audit 10th Table of contents:

Chapter 1. Auditing: Integral to the Economy

Overview of the External Auditing Profession

Introduction to the External Auditing Profession

External Auditing: A Special Function

The Need for Unbiased Reporting and Independent Assurance

Overall Objectives in Conducting an Audit

Overview of the Audit Opinion Formulation Process

Parties Involved in Preparing and Auditing Financial Statements

Providers of External Auditing Services

Skills and Knowledge Needed to Enter the External Auditing Profession

Organizations Affecting the External Auditing Profession

Audit Quality

Audit Firm Culture

Skills and Qualities of the Engagement Team

Effectiveness of the Audit Process

Reliability and Usefulness of Audit Reporting

Factors Outside the Control of Auditors That Affect Audit Quality

Achieving Audit Quality and Minimizing Lawsuits

Auditor Independence Requirements

Review Programs

Engagement Letters

Audit Firm Limitations

Audit Documentation

Client Acceptance and Continuance Decisions

Client Acceptance and Continuance-Related Risks

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases.

Application Activities.

Academic Research Cases.

Chapter 2. The Auditor’s Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Fraud Defined

Misstatements Arising from Misappropriation of Assets

Misstatements Arising from Fraudulent Financial Reporting

The Fraud Triangle

Incentives or Pressures to Commit Fraud

Opportunities to Commit Fraud

Rationalizing the Fraud

Recent History of Fraudulent Financial Reporting

Examples of Recent Frauds and Implications for External Auditors

The 2010 COSO Report

The Enron Fraud: A Key Driver of Regulatory Change

An Overview of the Auditor’s Fraud-Related Responsibilities and Users’ Expectations

Fraud-Related Requirements in Professional Auditing Standards

The Sarbanes-Oxley Act of 2002 as a Regulatory Response to Fraud

The Post Sarbanes-Oxley World: A Time of Improved Corporate Governance

What Is Corporate Governance?

Principles of Effective Corporate Governance

Responsibilities of Audit Committees

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Academic Research Cases.

Ford and Toyota

Chapter 3. Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Importance of Internal Control Over Financial Reporting

Defining Internal Control

Terminology: Entity-Wide Controls and Transaction Controls

Components and Principles of Internal Control

COSO Component: Control Environment

COSO Component: Risk Assessment

COSO Component: Control Activities

COSO Component: Information and Communication

COSO Component: Monitoring

Management’s Responsibilities Related to Internal Control Over Financial Reporting

Management’s Documentation of Internal Control

Management Reporting on Internal Control Over Financial Reporting

Evaluating Internal Control Over Financial Reporting

Assessing Deficiencies in Internal Control Over Financial Reporting

Importance of Internal Control to the External Audit

Example: Assessing Control Design Effectiveness, Implementation, and Operating Effectiveness

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Academic Research Cases.

Ford and Toyota

Chapter 4. Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

The Legal Environment and the Effects of Lawsuits on Audit Firms

Liability Doctrines

Class Action Lawsuits

Contingent-Fee Compensation for Lawyers

Audits Viewed as an Insurance Policy: The Expectations Gap

Applicable Laws and Causes of Legal Action

Laws from Which Auditor Liability Is Derived and Causes of Legal Action

Parties that May Bring Suit Against Auditors

Auditor Liability under Contract Law, Common Law, and Statutory Law

Common-Law Liability to Clients: Breach of Contract

Common-Law Liability to Third Parties

Auditor Liability under Statutory Law

Securities Act of 1933

Securities Exchange Act of 1934

Auditor Defenses and Possible Sanctions

Summary of Auditor Liability to Third Parties under Common and Statutory Law

A Framework for Professional Decision Making

Importance of Professional Skepticism in Making Professional Judgments

A Framework for Ethical Decision Making

Resolving Ethical Dilemmas

Applying the Ethical Decision Making Framework

Guidance on Professional Responsibilities and the Impact on Auditors’ Decisions

IESBA’s Code of Ethics

AICPA’s Code of Professional Conduct

Other Guidance on Professional Responsibilities: Sarbanes-Oxley Act, PCAOB, and SEC

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases.

Application Activities.

Academic Research Cases.

Chapter 5. Professional Auditing Standards and the Audit Opinion Formulation Process

Professional Auditing Standards

Auditing Standards Issued by the AICPA

Auditing Standards Issued by the IAASB

Auditing Standards Issued by the PCAOB

Comparison of the Auditing Standards

Principles Underlying the Auditing Standards

The Audit Opinion Formulation Process

An Overview of the Phases in the Audit Opinion Formulation Process

Important Concepts Pervasive Throughout the Audit Opinion Formulation Process

Phase I—Making Client Acceptance and Continuance Decisions

Phase II—Performing Risk Assessment

Phase III—Obtaining Evidence about Internal Control Operating Effectiveness

Summary of Audit Decisions Prior to Determining Substantive Procedures

Phase IV—Obtaining Substantive Evidence about Accounts, Disclosures, and Assertions

Phase V—Completing the Audit and Making Reporting Decisions

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases.

Application Activities.

Academic Research Case.

Chapter 6. A Framework for Audit Evidence

Obtaining Sufficient Appropriate Audit Evidence

Appropriateness of Audit Evidence

Relevance of Audit Evidence

Reliability of Audit Evidence

Type and Timing of Audit Procedures

Type of Audit Procedures

Timing of Procedures

Performing Substantive Analytical Procedures

Sufficiency of Audit Evidence

Sample Sizes

Additional Evidence Considerations

Evidence Needed for Auditing Management Estimates

Using a Specialist/Expert to Assist with Obtaining Evidence

Evidence Needed for Related-Party Transactions

Documenting Audit Evidence

Documenting Planning and Risk Assessment Procedures

Documenting Audit Work Performed

Documenting Significant Issues and Their Resolution

Characteristics of Quality Audit Documentation

Revisions and Retention of Audit Documentation

Audit Programs

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases.

Application Activities.

Academic Research Cases.

Ford and Toyota

ACL.

Chapter 7. Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

The Concept of Materiality

Definitions of Materiality

A Process for Making Materiality Judgments

Levels of Materiality

Qualitative Considerations

Identifying and Assessing Risks of Material Misstatement

Assessing Factors Affecting Inherent Risk

Assessing Factors Affecting Control Risk

Using Planning Analytical Procedures to Assess the Risk of Material Misstatement

Responding to Identified Risks of Material Misstatement

Determining Audit Risk and Detection Risk

Planning Audit Procedures to Respond to the Assessed Risks of Material Misstatement

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Academic Research Cases.

Ford and Toyota

Chapter 8. Specialized Audit Tools: Sampling and Generalized Audit Software

Overview of Sampling and GAS as Tools for Gathering Audit Evidence

Objectives of Sampling and Risks Associated with Sampling

Nonsampling and Sampling Risks

Nonstatistical and Statistical Sampling

Attributes Sampling

Steps in Attributes Sampling

Nonstatistical Sampling Approach to Testing Controls

Using Sampling to Gather Evidence about Misstatements in Account Balances and Associated Assertions

Steps in Sampling Account Balances and Associated Assertions

Nonstatistical Sampling for Substantive Tests of Account Balances and Associated Assertions

Statistical Sampling for Substantive Tests of Account Balances and Associated Assertions: Monetary Unit Sampling (MUS)

Using GAS to Obtain Evidence

Tasks Performed by GAS

Benefits of Using GAS

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Application Activities.

Academic Research Cases.

Chapter 9. Auditing the Revenue Cycle

Significant Accounts, Disclosures, and Relevant Assertions

Processing Revenue Transactions

Performing Risk Assessment Procedures in the Revenue Cycle

Identifying Inherent Risks

Identifying Control Risks

Performing Planning Analytical Procedures

Responding to Identified Risks of Material Misstatement

Obtaining Evidence about Internal Control Operating Effectiveness in the Revenue Cycle

Selecting Controls to Test and Performing Tests of Controls

Considering the Results of Tests of Controls

Obtaining Substantive Evidence about Accounts, Disclosures, and Assertions in the Revenue Cycle

Revenue and Accounts Receivable: Performing Substantive Analytical Procedures

Revenue: Substantive Tests of Details

Accounts Receivable: Substantive Procedures Based on the Aged Trial Balance

Accounts Receivable: Substantive Tests of Details—Confirmations

Accounts Receivable: Substantive Procedures for the Allowance Account

Accounts Receivable: Other Substantive Procedures

Performing Substantive Fraud-Related Procedures

Documenting Substantive Procedures

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Analytical Procedures: A Case in the Context of the Pharmaceutical Industry

Academic Research Cases.

Ford and Toyota

ACL.

Chapter 10. Auditing Cash and Marketable Securities

Significant Accounts, Disclosures, and Relevant Assertions

Overview of Cash Accounts

Cash Management Techniques

Relevant Financial Statement Assertions

Performing Risk Assessment Procedures for Cash Accounts

Identifying Inherent Risks

Identifying Control Risks

Performing Planning Analytical Procedures

Responding to Identified Risks of Material Misstatement

Obtaining Evidence about Internal Control Operating Effectiveness for Cash

Selecting Controls to Test and Performing Tests of Controls

Considering the Results of Tests of Controls

Obtaining Substantive Evidence about Cash Accounts, Disclosures, and Assertions

Substantive Analytics for Cash Accounts

Substantive Tests of Details for Cash Accounts

Auditing Marketable Securities

Significant Accounts, Disclosures, and Relevant Assertions

Performing Risk Assessment Procedures

Obtaining Evidence about Internal Control Operating Effectiveness and Substantive Evidence about Marketable Securities Accounts, Disclosures, and Assertions

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Academic Research Case.

Ford and Toyota

Chapter 11. Auditing Inventory, Goods and Services, and Accounts Payable: The Acquisition and Payment Cycle

Significant Accounts, Disclosures, and Relevant Assertions

Activities Involved in the Acquisition and Payment Cycle

Relevant Financial Statement Assertions

Performing Risk Assessment Procedures in the Acquisition and Payment Cycle

Identifying Inherent Risks

Identifying Control Risks

Performing Planning Analytical Procedures

Responding to Identified Risks of Material Misstatement

Obtaining Evidence about Internal Control Operating Effectiveness in the Acquisition and Payment Cycle

Selecting Controls to Test and Performing Tests of Controls

Considering the Results of Tests of Controls

Obtaining Substantive Evidence about Accounts, Disclosures, and Assertions in the Acquisition and Payment Cycle

Substantive Tests of Inventory and Cost of Goods Sold

Substantive Tests of Accounts Payable and Related Expense Accounts

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Analytical Procedures: A Case in the Context of the Pharmaceutical Industry

Academic Research Cases.

Ford and Toyota

ACL.

Chapter 12. Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Significant Accounts, Disclosures, and Relevant Assertions

Activities in the Long-Lived Asset Acquisition and Payment Cycle

Relevant Financial Statement Assertions

Performing Risk Assessment Procedures for Long-Lived Assets

Identifying Inherent Risks

Identifying Control Risks

Performing Planning Analytical Procedures

Responding to Identified Risks of Material Misstatement

Obtaining Evidence about Internal Control Operating Effectiveness for Long-Lived Asset Accounts and Related Expenses

Selecting Controls to Test and Performing Tests of Controls

Considering the Results of Tests of Controls

Obtaining Substantive Evidence about Accounts, Disclosures, and Assertions for Long-Lived Asset Accounts and Related Expenses

Substantive Analytical Procedures

Substantive Tests of Details for Tangible Assets—Testing Current-Period Additions

Substantive Tests of Details for Tangible Assets—Testing Current-Period Deletions

Substantive Procedures Related to Depreciation Expense and Accumulated Depreciation for Tangible Assets

Substantive Tests of Details for Natural Resources and the Related Expense Accounts

Substantive Tests of Details for Intangible Assets and the Related Expense Accounts

Substantive Procedures Related to Asset Impairment

Substantive Procedures Related to Leases

Performing Substantive Fraud-Related Procedures

Documenting Substantive Procedures

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Academic Research Cases.

Ford and Toyota

Chapter 13. Auditing Debt Obligations and Stockholders’ Equity Transactions

Significant Accounts, Disclosures, and Relevant Assertions

Debt Obligations

Stockholders’ Equity

Performing Risk Assessment Procedures for Debt Obligations and Stockholders’ Equity Transactions

Identifying Inherent Risks

Identifying Fraud Risk Factors

Identifying Control Risks

Performing Planning Analytical Procedures

Responding to Identified Risks of Material Misstatement

Obtaining Evidence about Internal Control Operating Effectiveness for Debt Obligations and Stockholders’ Equity Transactions

Obtaining Substantive Evidence in Auditing Debt Obligations and Stockholders’ Equity Transactions

Substantive Analytical Procedures—Debt Obligations

Substantive Tests of Details—Debt Obligations

Substantive Tests of Details—Stockholders’ Equity Transactions

Performing Substantive Fraud-Related Procedures

Documenting Substantive Procedures

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Analytical Procedures: A Case in the Context of the Pharmaceutical Industry

Academic Research Case

Chapter 14. Activities Required in Completing a Quality Audit

Review Activities

Reviewing, Summarizing, and Resolving Detected Misstatements

Reviewing and Assessing Contingencies

Reviewing and Assessing Significant Estimates

Reviewing the Adequacy of Disclosures

Reviewing and Assessing Clients’ Noncompliance with Laws and Regulations

Evaluating the Going-Concern Assumption

Performing Review Analytical Procedures

Reviewing and Evaluating Management Representations

Reviewing and Assessing Subsequent Events and Subsequently Discovered Facts

Performing an Engagement Quality Review

Consideration of Omitted Procedures Discovered after the Report Date

Communicating with Management and the Audit Committee (and Those Charged with Governance)

Communicating with the Audit Committee

Communicating with Management via the Management Letter

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases.

Application Activities.

Academic Research Case.

Ford and Toyota

Chapter 15. Audit Reports on Financial Statements

Principles Underlying Audit Reporting

Standard Unqualified Audit Reports on Financial Statements

Standard Unqualified Audit Reports: U.S. Public Companies

Standard Unqualified Audit Reports: U.S. Nonpublic Companies and Non-U.S. Companies

Unqualified Audit Reports with Explanatory Language

Explanatory Language: Justified Departure from GAAP

Explanatory Language: Inconsistent Application of GAAP

Explanatory Language: Substantial Doubt about the Client Being a Going Concern

Explanatory Language: Emphasis of a Matter

Explanatory Language: Reference to Other Auditors (Group Audits and Component Auditors)

Qualified Reports, Adverse Reports, and Disclaimers

Qualified Audit Reports

Adverse Audit Reports

Audit Reports with a Disclaimer of Opinion

Comparisons of Modifications to the Standard Unqualified Audit Report

Audit Reports on Internal Control Over Financial Reporting

Elements of Management’s Annual Report on Internal Control Are Incomplete or Improperly Presented

Restriction on the Scope of the Engagement

Auditor Refers to the Report of Other Auditors as the Basis, in Part, for the Auditor’s Own Report

Other Information Contained in Management’s Annual Report on ICFR

Management’s Annual Certification Pursuant to Section 302 of the Sarbanes-Oxley Act Is Misstated

Summary and Next Steps.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions.

Fraud Focus: Contemporary and Historical Cases

Application Activities.

Academic Research Cases.

Ford and Toyota

Chapter 16. Advanced Topics Concerning Complex Auditing Judgments

Complex Auditing Judgments

Identifying Complex Judgments in the Financial Statements

Evaluating Misstatements

Subjective Differences between the Auditor and the Client

Aggregating and Netting Misstatements

Intentional Misstatements

Considerations Regarding Selective Correction of Misstatements

Considering Misstatements in the Statement of Cash Flows

Regulatory Guidance Concerning Materiality Judgments

Assessing Long-Term Liabilities Involving Significant Subjective Judgment

Warranty Reserves

Pension Obligations and Other Postemployment Benefits

Auditing Merger and Acquisition Activities

Valuing the Assets and Liabilities of an Acquisition

Measuring Restructuring Charges

Auditing Management’s Fair Value Estimates and Related Impairment Judgments

The Accounting Model for Fair Value Estimates

Audit Considerations for Fair Market Estimates and Related Impairments

Auditing Financial Instruments

Overview of Financial Instruments

Audit Considerations for Financial Instruments

Evaluating a Client’s Internal Audit Function

An Overview of Internal Auditing

Evaluating the Quality of the Client’s Internal Audit Function

Summary and Next Steps.

Significant Terms

True/False Questions.

Multiple-Choice Questions

Review and Short Case Questions

Fraud Focus: Contemporary and Historical Cases

Application Activities

Academic Research Cases

Ford and Toyota

ACL

Chapter 17. Other Services Provided by Audit Firms

Nonaudit Attestation Services Provided by Audit Firms

Subject Matter of an Attestation Engagement

Components of Attestation Services and Parties Involved in Attestation Services

Levels of Assurance Provided in an Attestation Engagement

Professional Standards for Attestation Engagements

Reviews and Compilations

Reviews

Compilations

Reviews of Interim Financial Information for Audit Clients

Review Procedures for Interim Financial Information

Reporting on Interim Financial Statements

Special Considerations for Reporting

AU-C 800: Special Considerations—Audits of Financial Statements Prepared in Accordance with Special-Purpose Frameworks

AU-C 805: Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement

AU-C 806: Reporting on Compliance with Aspects of Contractual Agreements or Regulatory Requirements in Connection with Audited Financial Statements

Attestation on Agreed-Upon Procedures, Financial Forecasts and Projections, and Pro Forma Financial Information

Agreed-Upon Procedures Engagements (SSAEs No. 10 and 11, AT 201)

Financial Forecasts and Projections (SSAEs No. 10 and 17, AT 301)

Reporting on Pro Forma Financial Information (SSAE No. 10, AT Section 401)

Forensic Accounting

Sustainability Reporting and Assurance

Reporting on Sustainability Activities and Outcomes

Providing Assurance on Sustainability Reporting

Summary.

Significant Terms.

True/False Questions.

Multiple-Choice Questions.

Review and Short Case Questions

Application Activities

Academic Research Case

ACL Appendix. ACL Tutorial

Auditing Standards Appendix. Relevant Professional Auditing Standards for the Audit Opinion Form

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